Admittedly the following is to a large measure self serving. Nonetheless, it also serves to epitomize what has been transpiring in our country for too long: cherry picking anecdotal and/or out-of-context evidence by those without the requisite qualifications to comment on a topic for the purpose of advancing an agenda. That I have now encountered it twice in recent days concerning a vocation in which I have had considerable professional experience prompts this rebuttal.
While I will summarize the remarks I will rebut, I invite any who are curious as to the exact remarks to visit http://radicaltitletalk.blogspot.com/2008/01/lessons-of-s-l-crisis-were-forgotten.html. (The author of the transgressing comments is Diane Cipa and her email address is: firstname.lastname@example.org; email@example.com)
Ms. Cipa notes her curriculum vitae as “General Manager of The Closing Specialists®. She has over 30 years of experience in the real estate industry including real estate sales, mortgage lending, and title insurance.”
The offending remarks made by Ms. Cipa on Wednesday, January 2, 2008 are, “’The lesson of the S & L crisis were forgotten….’ will [sic] future generations remember the lessons of the mortgage crisis of 2007? You’ve got to wonder.” “Current regulation of appraisers resulted from the mass failure of S&Ls in the 1980s. A congressional panel concluded that flawed and fraudulent appraisals were major contributors to the losses.”
In the other (I cannot recall the publication, though it was within the past week.) instance, the author, also referring to the present mortgage meltdown, was chastising appraisers for failing to adequately consider value via the “Replacement Cost Approach.” I’ll deal with that admonishment also.
It is true that congressional hearings alleged appraisers played a contributing part in a multi-billion dollar taxpayer bailout of an industry that was the direct consequence of Reagan’s push to deregulate everything. But allegations are not requisite of factual representations.
From 1978 through 1994 I was the owner of a real estate appraisal business in the San Francisco Bay area. For the sole objective of being able to obtain unrestricted sales and listing data, in 1979 I became a licensed California real estate broker; not merely a licensed salesperson, a broker. In 1981, having taken the several professional courses necessary, and having successfully passed the exams, I was awarded two professional designations; ASA and RM — the first from the American Society of Appraisers, the second from the American Institute of Real Estate Appraisers.
Overwhelmingly, real estate appraisers fall into a limited number of employment categories; sole proprietors working on their own, owners of a small business (legally, less than 100 employees — by far, including the owner-appraiser, most have fewer than 10 employees!), and as employees of lending institutions. Moreover, appraisers are financially unaffiliated with each other and are scattered throughout the country. The typical fee for an appraisal of an average single family home in the mid-80s was $100.00 to $200.00. Multi-unit housing and atypical custom homes could cost more to appraise. These facts are absolutely essential to the discussion.
The art of appraising for current market value is based on uncomplicated principles I’ll illustrate via a simple storage facility example. Storage facilities are found everywhere, meaning in a variety of locations across the country and within the same economic region. Location is primary. It’s easy to understand how proximity to different geographic circumstances in the storage complex and the region can demonstrably affect the price/rental value. The appraiser’s task is to estimate the current worth of a single unit based on comparable other units; units that have sold or rented recently. If Units A, B, and C have rented/sold recently, say for $200.00, $250.00 and $300.00 respectively, and the unit being appraised is larger than A, smaller than C and is the same or most similar to B, the appraised value will approximate $250.00 PERIOD!
What it cost to build B is rather irrelevant. Homes, just like storage units, are most frequently built with economies of scale not available to the construction of just one unit, which are always considerably higher. So, what cost calculators and methods do you use? Does the unit have air conditioning? What about insulation? Now take this analogy to your home; upgraded carpeting, and to what level of upgrade; granite or tile kitchen counters; hardwood or laminate cabinets, etc. Next, which general and subcontractors will be used? What are their estimates, and do they have access to discounted materials, and to what extent? (I’ve never found the typical cost-index guides the least accurate when it comes to actually doing the building. Ask anyone who’s suffered a property loss and received an insurance settlement offer!) Another problem with the Replacement method is the inclusion of land; perhaps not as much of a challenge in rural areas, but a near impossibility in built-up and out urban locales. (Find a truly comparable, recent single lot sale in the typical urban setting, if you don’t believe me.) The next difficulty derives from estimating loss attributable to physical depreciation. For any reliable estimate, to determine how much loss has been suffered, you’ve got to know two dates: when it was built, when it will fall. It’s the last challenge I challenge anyone to provide by any means than an out-of-the-rear-sphincter guess. Thus, anyone attempting to browbeat an appraiser for failing to employ the Replacement Cost Approach just doesn’t know what he or she is talking about.
But here’s where we get to the hole in the hull that sinks not only Ms. Cipa’s attack on appraisers, but those urged by the exceptionally well-moneyed financial institution clients during the Reagan administration. The losses suffered were in the billions and billions and billions of dollars. Very few appraisers put all their eggs in one basket, having only one source for their assignments. I knew or knew of perhaps a hundred working in my area, and I knew not a one who was so foolish. A very busy appraiser might complete 35 to 50 assignments per month. Aside from some quite high-priced regions, which the SF Bay area was one, the average home value in the country approximated $50,000.00. Even if a few appraisers were egregiously corrupt, which I knew or knew of none (How many in their right mind are going to risk a $50,000 income to intentionally bend a value estimate, an estimate that is based on confirmable sale data, to continue to receive assignments from one of a collection of their clients, and/or how much would that client have to pay the appraiser to commit banking fraud?), do the math. Recall that the losses were in the multiples of billions of billions. How could appraisers possibly have sunk an entire industry that huge?
On the other hand, who were the officers and who were the institutions and who were their political clients, and how much taxpayer money was being sought to free them from the hook? If they could manage to deflect responsibility for the calamity, exactly as is the case today, what did they have to gain, if their deflecting efforts were successful?
How has this any connection to the larger picture today, a picture of other issues? The unfettered free market works miraculously, and when it doesn’t, don’t blame its most ideologically passionate adherents, those most enjoying life at the most rarified reaches of the food chain, find a scapegoat, preferably among those least able to defend themselves! And when you do blame someone, don’t let facts and the application of objective analysis prove an obstacle to the end result that’s being sought.
— Ed Tubbs